Southern Cone gas and power short-term outlook: a tough winter ahead

Above-average hydrology during the wet season in Brazil allowed the system operator to recover reservoirs, which reached an aggregate level of 70% in March. As a result, spot prices (PLD) remained at R$55.7/MWh, the regulatory price floor, in all regions. Facing an opposite scenario, Chile and Argentina continue to experience severe dry conditions, and reservoir levels in March decreased to, respectively, 19% and 35%. On the Argentinian end, however, imminent signature of the sixth addendum between IEASA and YPFB will mitigate the tight gas balance. However, complying to the committed volumes will not be an easy task for Bolivia. The country will rely on favorable hydro conditions in Brazil and the start-up of Margarita 10 well to meet the additional 6 Mcmd potentially ensured to Argentina. While the latter only depends on Bolivian E&P players, the former remains uncertain and will define Brazil's requirements of Bolivian gas.